Expensive Littler: Is paying workers with cryptocurrency an possibility?

Expensive Littler: We’re a multi-state employer with operations in a number of expertise hubs, together with Silicon Valley and Austin. Over the previous a number of months we’ve got heard from a number of candidates and workers about whether or not the corporate affords cryptocurrency as an possibility for compensation. Whereas I’m typically conscious of what cryptocurrency is, I do not need sufficient understanding to make an knowledgeable determination. Is paying cryptocurrency as a element of compensation an possibility?

—Confused on Crypto

Expensive Confused on Crypto,

Whereas cryptocurrency has been round since at the least 2009, it has change into extra mainstream lately and you’re seeing that widespread recognition together with your candidates and workers. For the uninitiated, cryptocurrency is a digital peer-to-peer cost system secured and verified by non-public codes housed on an encrypted public ledger referred to as blockchain, with out using banks or every other monetary institute. We’re seeing an uptick in questions from employers about utilizing cryptocurrency as a signifier in a aggressive labor market. Whereas there are mayors,¹ skilled athletes,² and at the least one nation³ which are embracing cryptocurrency, we suggest a cautious strategy to utilizing cryptocurrency as wages on your workers.

The paramount query is whether or not it’s authorized to pay wages to workers within the type of cryptocurrency. Underneath federal regulation (Honest Labor Requirements Act), wages have to be paid “in money or negotiable instrument payable at par.” 29 C.F.R. §531.27. A number of states, together with California, require that wages be paid in money or negotiable type of U.S. forex. Cal. Lab. Code §212 (prohibiting cost in “scrip, coupon, playing cards, or different factor redeemable, in merchandise or purporting to be payable or redeemable in any other case than in cash”). Cryptocurrency is neither money nor a negotiable instrument in the US, and isn’t backed by the federal government or different authorized entity. Due to this fact, use of cryptocurrency for base wages (hourly or wage) will not be beneficial. Whereas there could also be an argument that some types of cryptocurrency are readily exchangeable for U.S. forex, the authorized system remains to be catching as much as using cryptocurrency and has not issued any binding precedent to permit for the follow of cost of wages in cryptocurrency. Due to this fact, we suggest using conventional U.S. forex for cost of all wages to make sure compliance with federal, state, and native minimal wage necessities, time beyond regulation statutes, and wage thresholds for exemption classifications.

A separate situation associated to paying any type of wages in cryptocurrency is the related transaction charges for promoting cryptocurrency, exchanging cryptocurrency to U.S. {dollars}, or utilizing a cryptocurrency trade card. Many states, together with California, expressly require that wages be paid with out low cost. Even with out an specific statute prohibiting the follow, offering wages in a way that can not be utilized with out incurring a charge successfully lowers the workers’ take-home pay and will compound any worker frustrations if the worth of the cryptocurrency decreases. Actually, a variety of retailers are accepting some cryptocurrencies, however till workers will pay their lease, mortgage, utilities, and different necessities in cryptocurrency, there are dangers related to paying wages handcuffed with transaction charges.

Concerns for non-exempt workers additional complicate issues. Given the inherent nature of worth fluctuations with cryptocurrency, the suitable common charge of pay for time beyond regulation, paid sick time, meal and relaxation break premiums, or reporting time pay can be a continually transferring goal and could also be troublesome to find out. Any unpaid time or historic time/pay changes would require not solely a recalculation primarily based on the worth of the cryptocurrency on the precise time of the adjustment, but in addition a recalculation of all different common charge of pay funds in that point interval. Assuming the calculations may very well be finished appropriately, there can be a big administrative burden and price on your payroll division and/or exterior payroll supplier.

Along with wage and hour dangers, there are accounting and tax reporting difficulties that it is best to focus on with a tax skilled or tax legal professional.

Sensible Suggestions

We perceive that utilizing cryptocurrency could also be considered as a differentiator in attracting or retaining expertise, so in case you are contemplating utilizing cryptocurrency, we’ve got the next suggestions:

1. Restrict using cryptocurrency to exempt workers. Calculating the right common charge of pay for non-exempt workers can be troublesome and poses potential minimal wage and time beyond regulation considerations in case you are utilizing cryptocurrency for normal wages.
2. Restrict using cryptocurrency to bonuses. Given the variability and potential lower within the worth of a cryptocurrency, utilizing cryptocurrency as a part of a wage places at jeopardy the wage degree and wage foundation necessities for exemption classification functions.
3. Draft clear bonus plan documentation discussing the potential variation within the worth of the cryptocurrency bonus, the date the cryptocurrency bonus can be issued/earned so a valuation could be positioned for tax and accounting functions, the cryptocurrency trade the place the cryptocurrency is being issued, and that the bonus has no strings connected and is issued/cashed out on the day it’s earned.
4. Think about together with an acknowledgment within the bonus plan doc the place the worker acknowledges and accepts the chance of receiving compensation in cryptocurrency, the authorized dangers of receiving any type of compensation in cryptocurrency, and the potential drop in worth.

The underside line, Confused on Crypto, is that till our wage and hour legal guidelines meet up with the expertise, conventional types of wage cost, notably for non-exempt workers and for base pay, ought to proceed to be the norm in most situations. As with most points, please run any proposed adjustments to your strategies of cost by wage and hour counsel earlier than implementing them.